Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change

Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change

Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change

Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change

Synopsis

Revisiting Cyert and March's classic 1963 'Behavioral Theory of the Firm', Henrich Greve offers an intriguing analysis of how firms evolve in response to feedback about their own performance. Based on ideas from organizational theory, social psychology, and economics, he explains how managers set goals, evaluate performance, and determine strategic changes. Drawing on a range of studies, including the author's own analysis of the Japanese shipbuilding industry, he reports on how theory fits evidence on organizational change of risk-taking, research and development expenses, innovativeness, investment in assets, and in market strategy. The findings suggest that high-performing organizations quickly reduce their rates of change, but low-performing organizations only slowly increase those rates. Analysis of performance feedback is an important direction for research and this book provides valuable insights in how organizational learning interacts with other influences on organizational behaviour such as competitive rivalry and institutional influences.

Excerpt

This book is about how organizations react to performance feedback. It presents a theory of organizations learning from their experience by collecting performance measures, creating aspiration levels based on their own past performance or that of other organizations, and changing organizational activities if the performance is lower than the aspiration level. The mechanism is one of simple self-regulation by attempting to reach a goal not currently met but not seeking, in the short run at least, to go further than the level that just achieves it. Organizations with performance below the aspiration level of their managers have higher rates of strategic change, R&D expenditure, innovation, and investment. These activities influence the performance and risk of the organization, but otherwise they have little in common. All are affected by the organizational performance because managers are willing to try a wide range of strategic actions to solve a problem of low performance.

We can see this reaction to performance feedback reflected in the behavior of individual firms. After the Japanese car makers had great successes in the 1980s US auto market, General Motors was still the world's largest auto maker and the dominant firm in the USA. It was doing less well than it had in the past, however, with its domestic market share in cars falling from 49% in 1980 to below 40% in 1987. During this period, General Motors implemented a remarkable series of projects to make up for the perceived shortfall. It continued a massive investment program in its factories that had been announced in 1979 and aimed to make GM's manufacturing more automatized than that of any other car maker. This program would eventually cost $40 billion, making it perhaps the largest non-government investment program in history. GM started collaborative manufacturing with Toyota in the now-famous NUMMI plant, and took equity positions in foreign car makers such as Suzuki, Isuzu, Nissan, and Daewoo. GM supported this push into Asia by building a

This paragraph is based on information in three Harvard Business School cases
(Badaracco 1988; Green 1993; Keller 1994).

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.